Modeling and simulation of product diffusion considering learning effect

Abstract

Bass model is one of the most representative work in the area of product diffusion. It has some limitations due to its strict assumptions. This paper has extended the application of Bass model to fit two competitive products, and has got an analytical expression for the profits of competitive products. In this model the learning effect of variable cost is taken into account, and its influence to product profit is also analyzed. The mathematical models representing the process of product diffusion are transformed into system dynamics(SD) models, through which the dynamic characteristics during the products diffusion process are displayed. The correctness of the models is testified qualitatively by using Vensim to simulate the SD models. The sensitivity analysis is performed to see how the typical parameters would affect the key variables in the models. The mutual relationships between the factors which would affect product diffusion are revealed. The system properties are explored, which provides a foundation to make policies of product development and diffusion.